OMB No.

1545-1569

Form 8861 Welfare-to-Work Credit

2003
Department of the Treasury 䊳 Attachment
Attach to your tax return.
Internal Revenue Service Sequence No. 107
Name(s) shown on return Identifying number

Part I Current Year Credit

1 Enter on the applicable line below the qualified first- or second-year wages paid or incurred
during the tax year and multiply by the percentage shown for services of employees who began
work for you before January 1, 2004, and are certified as long-term family assistance recipients.
Members of a controlled group, see instructions.
a Qualified first-year wages $ ⫻ 35% (.35) 1a
b Qualified second-year wages $ ⫻ 50% (.50) 1b
2 Add lines 1a and 1b. You must subtract this amount from your deduction for salaries and wages
2
If you are a— Then enter the total of the credits from—
3 Welfare-to-work

其
credits from a Shareholder Schedule K-1 (Form 1120S), lines 12d, 12e, or 13
pass-through b Partner Schedule K-1 (Form 1065), lines 12c, 12d, or 13 3
entities: c Beneficiary Schedule K-1 (Form 1041), line 14
d Patron Written statement from cooperative
4 Current year credit. Add lines 2 and 3. (S corporations, partnerships, estates, trusts, cooperatives,
regulated investment companies, and real estate investment trusts, see instructions.) 4
Part II Allowable Credit (See Who must file Form 3800 to find out if you complete Part II or file Form 3800.)

其
5 Regular tax before credits:
● Individuals. Enter the amount from Form 1040, line 41
● Corporations. Enter the amount from Form 1120, Schedule J, line 3; Form 1120-A,
Part I, line 1; or the applicable line of your return 5
● Estates and trusts. Enter the sum of the amounts from Form 1041, Schedule G, lines 1a
and 1b, or the amount from the applicable line of your return
6 Alternative minimum tax:

其
● Individuals. Enter the amount from Form 6251, line 35
● Corporations. Enter the amount from Form 4626, line 14 6
● Estates and trusts. Enter the amount from Form 1041, Schedule I, line 56
7 Add lines 5 and 6 7
8a Foreign tax credit 8a
b Credit for child and dependent care expenses (Form 2441, line 11) 8b
c Credit for the elderly or the disabled (Schedule R (Form 1040), line 24) 8c
d Education credits (Form 8863, line 18) 8d
e Credit for qualified retirement savings contributions (Form 8880, line 14) 8e
f Child tax credit (Form 1040, line 49) 8f
g Mortgage interest credit (Form 8396, line 11) 8g
h Adoption credit (Form 8839, line 18) 8h
i District of Columbia first-time homebuyer credit (Form 8859, line 11) 8i
j Possessions tax credit (Form 5735, line 17 or 27) 8j
k Credit for fuel from a nonconventional source 8k
l Qualified electric vehicle credit (Form 8834, line 20) 8l
m Add lines 8a through 8l 8m
9 Net income tax. Subtract line 8m from line 7. If zero, skip lines 10 through 13 and enter -0- on line 14 9
10 Net regular tax. Subtract line 8m from line 5. If zero or less, enter -0- 10
11 Enter 25% (.25) of the excess, if any, of line 10 over $25,000 (see instructions) 11

其
12 Tentative minimum tax (see instructions):
● Individuals. Enter the amount from Form 6251, line 33
● Corporations. Enter the amount from Form 4626, line 12
● Estates and trusts. Enter the amount from Form 1041,
Schedule I, line 54 12
13 Enter the greater of line 11 or line 12 13
14 Subtract line 13 from line 9. If zero or less, enter -0- 14
15 Credit allowed for the current year. Enter the smaller of line 4 or line 14 here and on Form
1040, line 52; Form 1120, Schedule J, line 6d; Form 1120-A, Part I, line 2a; Form 1041, Schedule
G, line 2c; or the applicable line of your return. If line 14 is smaller than line 4, see instructions 15
For Paperwork Reduction Act Notice, see page 3. Cat. No. 24858E Form 8861 (2003)
Form 8861 (2003) Page 2

General Instructions Line 1

Enter on the applicable line and multiply by the percentage
Section references are to the Inter nal Revenue Code unless
shown the total qualified first-year or second-year wages
otherwise noted.
paid or incurred to employees certified as long-term family
assistance recipients. Qualified first-year wages are qualified
A Change To Note wages you paid or incurred for work performed during the
The credit is not allowed with respect to wages for services 1-year period beginning on the date the certified individual
of employees who began work for you after December 31, begins work for you. Qualified second-year wages are
2003. qualified wages you paid or incurred for work performed
Caution: At the time this for m was issued, Congress was during the 1-year period beginning on the day after the
considering legislation that would also allow this credit with last day of the first-year wage period. The amount of
respect to employees who began work for you in 2004. See qualified first-year wages, and the amount of qualified
Pub. 553, Highlights of 2003 Tax Changes, to find out if this second-year wages, which may be taken into account for
legislation was enacted. any employee is limited to $10,000 per year.

Purpose of Form Qualified Wages

Use Form 8861 to claim the welfare-to-work credit for wages Wages qualifying for the credit generally have the same
you paid to or incurred for long-term family assistance meaning as wages subject to the Federal Unemployment Tax
recipients during the tax year. The credit is 35% of qualified Act (FUTA). For agricultural employees, if the work performed
first-year wages and 50% of qualified second-year wages by any employee during more than half of any pay period
paid or incurred during the tax year. qualifies under FUTA as agricultural labor, that employee’s
You can claim or elect not to claim the welfare-to-work wages subject to social security and Medicare taxes are
credit any time within 3 years from the due date of your qualified wages. For a special rule that applies to railroad
return on either your original return or on an amended return. employees, see section 51(h)(1)(B). Qualified wages for any
employee must be reduced by the amount of any work
How To Claim the Credit supplementation payments you received under the Social
Security Act for the employee.
To claim the welfare-to-work credit, you must request and be
Qualified wages also include the following amounts you
issued a certification for each employee from the state
paid or incurred for the employee that are excludable from
employment security agency (SESA). The certification proves
the employee’s gross income.
that the employee is a long-term family assistance recipient.
You must receive the certification by the day the individual ● Premiums and other amounts you paid or incurred under
begins work, or you must complete Form 8850, an accident and health plan excluded under section 105 or
Pre-Screening Notice and Certification Request for the Work 106 (the amount must be based on the reasonable cost of
Opportunity and Welfare-to-Work Credits, on or before the coverage, but may not exceed the “applicable premium”
day you offer the individual a job. under section 4980B(f)(4)).
If you complete Form 8850, it must be signed by you and ● Educational assistance excluded under section 127, if paid
the individual and submitted to the SESA by the 21st or incurred to a person not related to the employer.
calendar day after the individual begins work. If the SESA ● Dependent care benefits excluded under section 129.
denies the request, it will provide a written explanation of the The amount of qualified wages for any employee is zero if:
reason for denial. If a certification is revoked because it was ● The employee did not work for you for at least 400 hours
based on false information provided by the worker, wages or 180 days,
paid after the date you receive the notice of revocation do
● The employee worked for you previously,
not qualify for the credit.
● The employee is your dependent,
An employee may be certified as a long-term family
assistance recipient if he or she is a member of a family that: ● The employee is related to you (see section 51(i)(1)), or
● Received assistance payments from Temporary Assistance ● 50% or less of the wages the employee received from you
for Needy Families (TANF) for at least 18 consecutive months were for working in your trade or business.
ending on the hiring date, Qualified wages do not include:
● Received assistance payments from TANF for any 18 ● Wages for services of an employee who began work for
months (whether or not consecutive) beginning after August you after December 31, 2003.
5, 1997, and the employee is hired not more than 2 years ● Wages paid to any employee during any period for which
after the end of the earliest 18-month period, or you received payment for the employee from a federally
● After August 5, 1997, stopped being eligible for assistance funded on-the-job training program, and
payments from TANF because Federal or state law limits the ● Wages for services of replacement workers during a strike
maximum period such assistance is payable, and the or lockout at a plant or facility.
employee is hired not more than 2 years after the date the Successor employer. For successor employers, the 1-year
eligibility for such assistance ended. period begins on the date the employee first began work for
Additional Information the previous employer and any qualified first-year wages paid
See section 51A for more details. by the successor employer are reduced by the qualified
first-year wages paid by the previous employer. See section
51(k)(1) and Regulations section 1.51-1(h).
Specific Instructions A successor employer is an employer that acquires
Part I—Current Year Credit substantially all of the property used in a trade or business
Note: If you only have a credit allocated to you from a (or a separate unit thereof) of another employer (the previous
pass-though entity, skip lines 1 and 2 and go to line 3. employer) and immediately after the acquisition the
successor employs in his/her trade or business an individual
who was employed immediately prior to the acquisition in the
trade or business of the previous employer.
Form 8861 (2003) Page 3
Special instructions for controlled group members. The Who must file Form 3800. You must file Form 3800 if you
group member proportionately contributing the greatest have:
first-year wages figures the group credit in Part I and skips ● A welfare-to-work credit from a passive activity,
Part II. See sections 52(a) and 1563. On separate Forms ● More than one credit included in the general business
8861, that member and every other member of the group credit (other than a credit from Form 8844 or 8884), or
should skip line 1 and enter its share of the group credit on
line 2. Each member then completes lines 3, 4, and 5 ● A carryback or carryforward of any of those credits.
through 15 (or Form 3800, if required) on its separate form. See the instructions for Form 3800 to find out which
Each member must attach to its Form 8861 a schedule credits are included in the general business credit.
showing how the group credit was divided among all the
members. The members share the credit in the same
Line 11
proportion that they contributed qualifying wages. See section 38(c)(4) for special rules that apply to married
couples filing separate returns, controlled corporate groups,
Line 2 regulated investment companies, real estate investment
In general, you must reduce your deduction for salaries and trusts, and estates and trusts.
wages by the amount on line 2. This is required even if you Line 12
cannot take the full credit this year and must carry part of it
back or forward. Although you may not owe alternative minimum tax (AMT),
you generally must still compute the tentative minimum tax
The exceptions to this rule are as follows.
(TMT) to figure your credit. For a small corporation exempt
● If you capitalized any salaries and wages on which you from the AMT under section 55(e), enter zero. Otherwise,
figured the credit, reduce the amount capitalized by the complete and attach the applicable AMT form or schedule
amount of the credit on those salaries and wages. and enter the TMT on line 12.
● You used the full absorption method of inventory costing
which required you to reduce your basis in inventory for the Line 15
credit. If you cannot use all of the credit because of the tax liability
If either of the above exceptions applies, attach a limit (line 14 is smaller than line 4), carry the unused credit
statement explaining why the line 2 amount differs from the back 1 year then forward up to 20 years. See the instructions
amount by which you reduced your deduction. for Form 3800 for details.
Line 3
Enter the amount of credit that was allocated to you as a Paperwork Reduction Act Notice. We ask for the
shareholder, partner, beneficiary, or patron of a cooperative. information on this form to carry out the Internal Revenue
laws of the United States. You are required to give us the
Line 4 information. We need it to ensure that you are complying
S corporations and partnerships. Prorate the credit on line with these laws and to allow us to figure and collect the right
4 among the shareholders and partners. Attach Form 8861 amount of tax.
to the return and on Schedule K-1 show the credit for each You are not required to provide the information requested
shareholder or partner. Electing large partnerships include on a form that is subject to the Paperwork Reduction Act
this credit in “general credits.” unless the form displays a valid OMB control number. Books
Estates and trusts. Allocate the credit on line 4 between the or records relating to a form or its instructions must be
estate or trust and the beneficiaries in proportion to the retained as long as their contents may become material in
income allocable to each. On the dotted line next to line 4, the administration of any Internal Revenue law. Generally, tax
the estate or trust should enter its part of the total credit. returns and return information are confidential, as required by
Label it “1041 Portion” and use this amount in Part II (or section 6103.
Form 3800, if required) to figure the credit to claim on The time needed to complete and file this form will vary
Form 1041. depending on individual circumstances. The estimated
Cooperatives. Most tax-exempt organizations cannot take average time is:
the credit; but a cooperative described in section 1381(a) Recordkeeping 8 hr., 22 min.
takes the credit to the extent it has tax liability. Any excess is Learning about the law
shared among its patrons. or the form 1 hr., 35 min.
Regulated investment companies and real estate Preparing and sending
investment trusts. Reduce the allowable credit to the the form to the IRS 1 hr., 48 min.
company’s or trust’s ratable share of the credit. For details,
see Regulations section 1.52-3(b). If you have comments concerning the accuracy of these
time estimates or suggestions for making this form simpler,
Part II—Allowable Credit we would be happy to hear from you. See the instructions
for the tax return with which this form is filed.
The credit allowed for the current year may be limited based
on your tax liability. Use Part II to figure the allowable credit
unless you must file Form 3800, General Business Credit.